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Personal Finances / Paying Back Student Loans

URL:  https://boards.fool.com/the-only-fly-in-the-ointment-about-the-bt-method-30493561.aspx

Subject:  Re: At a crossroad.... Date:  1/18/2013  3:56 PM
Author:  aj485 Number:  4805 of 4848

The only fly in the ointment about the BT method (I used that to get out of CC debt about 10 years ago--well versed in this!) is how it would reflect on my credit score.... Not sure I want to take that hit...

Do you know how much of a credit hit that you took when you were using the BT method to get out of debt before?

What is the credit line on the card that you would transfer the debt to? What is your total available revolving credit?

In general, if the debt is less than 50% (sometimes up to 90%, depends on your particular credit strata) of the credit line amount on the single card, it shouldn't be much of hit if any. I once used one of those '12 months 0% on purchase' deals, paying minimium payments and putting the other money into savings (paying 5% at the time) and my credit score was not affected until the balance hit 90% of the line, and even then it was only a few points.

And if the total that you charge on other cards plus the debt is less than 10% of your overall available credit, then there generally isn't an impact either.

If you are worried about what the impact on your credit score would be, there are several credit score simulators that you can use. I've used one at www.creditkarma.com and it seems to be fairly accurate. I think www.bankrate.com has one, too, among others.

No one has commented on the option of ratcheting back on my 401k.... Should I take silence on this point as it being a bad idea?

As long as you continue to contribute enough to get any match from your employer, I would say it's a personal preference for you - investing vs. paying off debt. I will say, it's tough to find a risk free investment that yields 6.67% nowadays, so if that's a way that you can bump up payments on the loan or the BT to pay the debt off faster, I would strongly consider it, assuming that you will be disciplined enough to start putting the loan/BT payments back into investing once you get the debt paid off.

AJ
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